Growth stocks will be challenged in 2022 Growth stocks will be challenged in 2022 Growth stocks will be challenged in 2022

Growth stocks will be challenged in 2022

Peter Garnry

Head of Equity Strategy

Summary:  Looking ahead to the new year, we have asked the Saxo Strats what they will be looking at in the new year. In this article, our Head of Equity Strategy, Peter Garnry, takes a look at equities and specifically how growth stocks might be challenged in 2022.

In 2021, Investors were twice reminded that higher interest rates for equities that are priced on rather aggressive implied growth rates can plummet. But both times equities have come back, supported by strong earnings growth this year, as the economy came roaring back from the abyss in 2020.

In the past couple of months, we have seen multiple examples of growth stocks tumbling on earnings releases, due to what has generally been seen as a response to narrowly missing revenue growth figures. But in our opinion, this is actually not the right reason growth stocks have been sent on a downwards trajectory. Rather, it is the lack of improvement in operating margins that’s the culprit – and that is going to be a major theme within growth stocks in 2022.

One figure to put attention to connected to this is equity duration, which essentially is an expression of how sensitive a given equity is to increases in another financial figure, otherwise referred to as the discount rate – in this case the US 10-year yield. Many fast-growing growth companies have an equity duration of around 15-20, and some fast growing, but not profitable, companies may have equity duration of around 25-30, meaning that they in theory see their shareholder value go down by 15-20% or 25-30% if the US 10-year yield goes up by 100 basis points – or 1%.

The only way to offset that impact is by either improving the money earned by a company, i.e. revenue growth, or the amount of money you earn per dollar you spend, i.e. operating margin. The former is difficult when growth is already high and fiscal headwinds are likely to play a role next year, lowering the growth momentum. On the positive side, China is beginning to stimulate its economy, which could push growth in the right direction.

Still, the more likely scenario is that increasing growth in companies that already experience high growth in the current macro environment will struggle to improve revenue growth. That leaves the operating margin at the core of offsetting higher interest rates next year, should the bond market finally close the gap with inflation expectations. But improving operating margins might be difficult with wage pressures at unprecedented levels not seen since the 1970s and rising input costs from commodities and electricity.

The combination of potentially higher interest rates and difficulties improving operating margin from already high levels for many companies might prove too difficult or even impossible. That is likely the reason investors are reducing their exposure to growth companies and instead search for safe havens in mega caps as these companies have a better chance of preserving, or even increasing, their operating margin. Microsoft is a recent example, showing its market power signaling a steep increase in its price on some of its software.

We continue to recommend investors to reduce growth exposure and balance the portfolios with companies in the themes such as cyber security, logistics, semiconductor, agriculture, energy, financials, mega caps, and India. Overall, next year will prove difficult for equity investors with more volatility, less direction, and the battle between interest rates and profitability.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.